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Demonetisation update 11 – some good reads

I have come across some good reads. I must confess that I have been reading mostly (or, only) MINT columns. Hence, the list is going to be high on pieces that appeared in MINT.

(1) Vijay Kelkar and Ajay Shah have written about six battlefronts in the war on corruption. I have my quibbles on full capital account convertibility. Policymakers must have the choice of imposing capital controls. CAC is only tangentially related to domestic corruption in India. CAC does not have much of a basis in economic theory. The rest is fine by me, more or less.

(2) Niranjan’s piece is a good one for two reasons. One, he is right that India’s policy experiment is a huge treasure for academics. Academics from different disciplines will be salivating at the prospect of writing so many papers on this. I had written in a blog post that many case studies could and would be made out of this exercise. Second, he is right that its deeper effects will take time to be understood.

Niranjan asks the question:

Is it created by the central bank through the expansion of its balance sheet? Or is it created through the expansion of bank credit that the central bank then accommodates?

Bank of England has answered it, unambiguously. It is the latter.

(3) This piece, written by two academics associated with the Indian School of Business, takes a narrow look at whether the poor are suffering by standing in the lines. They show that they may not be the ones who are standing in the line. That part of it is addressed well. But, my friend Rajan Govil points out that the broader point must be whether employment in the informal sector will be affected. The impact on the poor from that is far more crucial than that, says he. Point taken. However, the narrow point is well argued by the two academics.

(4) This piece, forwarded by a friend and published in Economic Times is excessively panglossian on the impact of demonetisation. Ignores behavioural impacts and is vague about the short and the long run. My point is that it is too soon to argue for or against the move from the economic impact angle.

(5) Surprisingly poorly argued piece by Ruchir Sharma. He highlights the Indonesian amnesty which pardoned wealth stashed abroad by taxing it at 4% if brought back.But, doesn’t it have moral hazard written all over it? Is there any guarantee that it would not lead to further hoarding of wealth abroad with periodical amnesty at such low rates of taxation? Second, nations have to get richer, no doubt. But, that does not mean that they cannot pursue corruption. Even rich nations are being advised to ban high denomination notes as part of the fight against corruption.

(6) Monika Halan takes on some of the critics of the demonetisation in this piece. But, the point I liked the most is this:

But for a country waiting for big bang reforms, the way we are reacting to what is a big bang reform tells us that we like reform as long as it does not touch our lives.

In one of my blog posts, I had written that India has not had structural reforms at all. That is why no one has felt any pain. No real reform is painless. I had also added that none of these people would make good leaders if they do not have the courage to inflict pain, when needed and for a larger purpose. Moral clarity and courage are needed to do so.

The rest of her responses to critics’ points are well made. I have made them too and more in my forthcoming comprehensive piece for ‘Swarajya’ print magazine.

(7) Bloomberg has many interesting charts here but the slant is very negative. The slant was very negative in their BloombergView piece too. The header, ‘India’s misguided war on cash’ says it all. I wonder why.

(8) Another friend forwarded a comment by Mr. Yashwant Sinha, former Finance Minister, published in NDTV. He had written that the Indian economy faced three disruptions – Trump and the Fed tightening, GST and now demonetisation. He was commenting on the tepid job creation in the Indian economy, if it may be called that. I was actually going to do a blog post separately on that, after I had noticed that the Labour Bureau of the Government of India had some new updates on the employment and unemployment situation in the country. Mr. Sinha is right about the absolute criticality of jobs and he is also right that, in the short-run, this demonetisation drive may actually be anti-employment. It need not necessarily be but it might well be.

(9) I had listened to Dr. Arun Shourie’s interview to NDTV on this matter. I have no comments on the contents of the interview. He might have reached an inflection point from where his comments hurt his credibility more than they hurt the government. That would be sad. He deserves better and he should realise that.

(10) Tamil writer Jayamohan has a longish blog post in Tamil on the war on black money. He is supportive and calls out the Leftists for their hypocrisy. But, there is also the obligatory attacks on the Prime Minister. Wonder why.

(11) MINT has curated some of the columns that had appeared in their pages on this topic and published a TO READ list. Pleased to find our (Gulzar and mine) piece in it. This is our second joint piece for MINT, based on our ‘Can India grow?’ report for Carnegie India. The first one appeared on Nov. 15.